How Smart Is ‘Smart Beta’ vs Classic Beta?

How Smart Is ‘Smart Beta’ vs Classic Beta?

Most of the glowing analysis of so-called smart beta ETFs focuses on individual funds and how they offer advantages over their conventionally designed counterparts that weight securities by market capitalization—classic beta, as we’ll call them here. But what happens when we design portfolios with smart beta products? How do they compare with an equivalent classic beta asset allocation

For this simple test, we’ll build two globally diversified portfolios—one with SB ETFs, the other with the CB funds, with a starting date of Dec. 31, 2007. In both cases, the initial mix is echoes a market cap allocation for global equities

It’s clear that the two portfolios track one another closely. The SB strategy delivers mildly stronger returns for brief periods. But at the end of the five-year period there’s not a meaningful difference between the two.


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